Hecla Mining's (NYSE:HL) Returns On Capital Tell Us There Is Reason To Feel Uneasy

What financial metrics can indicate to us that a company is maturing or even in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. In light of that, from a first glance at Hecla Mining (NYSE:HL), we've spotted some signs that it could be struggling, so let's investigate.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Hecla Mining, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.018 = US$50m ÷ (US$3.0b - US$145m) (Based on the trailing twelve months to September 2023).

Thus, Hecla Mining has an ROCE of 1.8%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 9.9%.

Check out our latest analysis for Hecla Mining

In the above chart we have measured Hecla Mining's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Hecla Mining here for free.

So How Is Hecla Mining's ROCE Trending?

In terms of Hecla Mining's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 2.9% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Hecla Mining to turn into a multi-bagger.

In Conclusion...

In summary, it's unfortunate that Hecla Mining is generating lower returns from the same amount of capital. But investors must be expecting an improvement of sorts because over the last five yearsthe stock has delivered a respectable 60% return. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

Hecla Mining does have some risks though, and we've spotted 1 warning sign for Hecla Mining that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.